Foreign Trade Of India

Meaning

• Foreign Trade refers to trade carried on by India with other countries. It comprises of :

A) Export Trade :Sale of G/S by India to other countries (visible & invisible items)

B) Import Trade :Purchase of G/S by India from other countries (visible & invisible items)

Importance In Economic Development

• Foreign Trade plays an very important role in economic development. Following are the importance listed below :

1) Industrial (Raw Materials & Technology)

2) Good insufficient e.g. petroleum, metals like: Zinc Lead Copper.

3)Export good of surplus.4) Widens Markets for our products

5) Our Exports Pay for Imports

6) Growth of NI

7) Civilization- economic well – being

8) Co-operation between countries

9) Employment

10) Exploitation of untapped resources

Features of Foreign Trade A) Sea – Born 95%

B) Increase in value of trade – in cores

C) Change in Composition of trade -

Before independence – • Imports were Manufactured goods• Exports were raw cotton & raw jute

After independence – • Imports were raw materials • Exports were commercial items

1950-51 2005-06

1,214 11,16,827

D) Invisible Imports – After Independence better Growth

E) Direction Of Trade –Before independence : UK

After independence : Germany, Japan ,China

F) Adverse BOT- in cores

G) Increase in Govt participation

H) Bilateral Agreements : Russia, Germany

I) Import Restrictions : Tariff & Quota

1991-92 2005-06

3,809 2,03,991

Composition & Direction Of Trade

Composition Of Trade

Items of Goods Imported/Exported in India.

Primary Manufacture Services

Plantation CropsTobaccoSpices Ores & Minerals Leathers

Cotton Textiles Jute ManufactureGems & jewelleryHandicraftsOthers •Sugar•Sports goods•Soaps

Computer Sofware ServiceTourist ServiceBanking Insurance

Items of exports

Primary Plantation Crops (Traditional) 2676 in 2003 -UK USA

Tobacco-(Un manufactured) – UK ,JAPAN

Spices (Traditional) pepper clove –USA, Middle East

Ores & Minerals: Iron Mica – USA ,Iran, Japan

Leathers 11,915 in 2005-2006 UK Russia Germany

ManufactureCottonTextiles (Traditional) 55,408 in 2005-06 UK Japan

Jute Manufactures (Traditional) 1,318 in 05-06 USA UK

Gems & Jewellery 68,572 in 2005 - USA, Middle East

Handicrafts 5,683 in 2005 -2006

Items of ImportsCommodities 2005-2006(crore) Countries Petroleum & products 1,94,640 Iran Iraq KuwaitPearls, precious stones

40,441 Increase in DD

Capital Goods 1,04,142 USA JapanFertilisers (Agriculture)

8,815 USA Germany

Metals 68,93 (2003-04) Germany UKFood Grains 88 (2003-04) USA Australia Edible oil 8961Raw Cotton USA EgyptRaw Jute 1 BANGLADESH

Others –Medicines, Chemicals, Coal, News Prints

Composition Of TradeCountries with which India carries foreign trade.

Before independence : UKAfter independence : Germany, Japan ,ChinaToday , India has trade with all major trading blocks and geographical regions of world.Region wise exports%

Region wise exports%

Asia W-Europe America

46.35 24.02 21.10

34.54 23.58 8.59

Country –wise India's Foreign Trade in Rs Crores (2005-06)

Country Exports % Imports %

Germany 15571 3.42 25760 4.09

U.K 22783 5.01 17259 2.74

USA 76166 16.7 34436 5.46

Russia 3232 0.7 8819 1.40

African

Countries

24723 5.44 17156 2.72

Balance of payments • In economics, the balance of payments,

(or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year.

• Significance – 1. Indicates international economic position.2. Useful in economic analysis

Structure or components of BOP

• The current account consists of the goods and services account, the primary income account and the secondary income account. (1) Visible (2) Invisible (3) Unilateral Transfers

• The capital account in the international accounts shows (1) capital transfers receivable and payable (Movements of SR &LR); and (2) change in foreign exchange reserve

CURRENT ACCOUNT

(1) Visible - BOT covering all imports/exports

(2) Invisible–Services like Transport & Banking

(3) Unilateral Transfers – Gifts ,Donations

CAPITAL ACCOUNT

(1) Movements of SR &LR –Governmental Capital transactions including International Agencies & private capital transactions

(2) change in foreign exchange reserve – inflow and outflow of exchange reserve

Current position Of India's Foreign Trade

• 1951-76 (deterioration )

• 1977-1980( improvement)

• 1980-1990 (structural balance)

• 1991-96 (stabilization)

• 1996-2006(Surplus)

Causes for Disequilibrium in BOP

• Increase in Imports

• Slow growth of exports

• Growth of population

• Substitute Products – Silk

• Oil Crises – (300%)

• Increase expenditure on foreign loans

• Imports of Food Grains

Measure to correct Disequilibrium in BOP• Export Promotion• Publicity- Trade Fair Authority of India TFAI• Exports Incentives• Trade agreements• Devaluation• Tax Relief • Credit Facilities • Import Restriction• Attract Foreign tourist • Import Substitution

Differences between BOT & BOP

Balance Of Trade Balance Of Payments

Only visible items (Goods) Both visible & invisible (G/S)

Narrow in scope Border in scope

Current Account Current & Capital Account

No realistic Picture in economic position in international trade

Realistic Picture in economic position in international trade

Foreign exchange reserves

• Foreign exchange process of converting one national currency into another and of transferring money from one country to another.

• Foreign exchange reserves official holding of foreign currency (central bank) by a nation

• Import cover Foreign exchange - amount of foreign currencies earned by nation by export of G&S to other country at a given point of time

Trade Sector Reforms

1. Formulation of EXIM policy2. Measures for Export promotion3. Liberalized Import policy4. Removal of quantitative Restriction• GATT- General Agreement on Tariffs and Trade

• GATS- General Agreement on Trade in service

• TRIPS- Trade Related aspects of Intellectual property Rights

• TRIMS- Trade Related Investment Measures

• WTO – world Trade Organization

EXIM policy

• Export and Import Policy for the five year period 2002-07 coinciding with the 10th Five year Plan.

• This Policy recognized that international trade is a vital part of development strategy and that it can be an effective instrument of economic growth.

• the policy adopted the goal for India to reach 1% share of global trade by the year 2007, up from the level of 0.67%.

• Special Economic Zones (SEZ) • Export Oriented Units (EOU)

Measures for Export promotion

• Packaging for Exports

Role of packaging for exports has gained much significance in view of trends in the world markets. The need for better and scientific packaging for exports from small sector was recognised long back. With a view to acquaint SSI Exporters of the latest Packaging standards, techniques etc.

• Technical & Managerial Consultancy Services • Marketing Development Assistance • Setup of EXIM bank• Bilateral tarde• 100% EOU’s were promoted• Several duties have been abolished

Liberalized Import policy• One of the objective of GATT and WTO is to

Liberalized Import among members• In 2001 as per WTO, all quantitative restriction

except a few related to defence and health have been fully removed.

Removal of quantitative Restriction• Since independence, India has been

safeguarding Domestic industries. By Tariff and quotas.

• In 1999 2,700 items were not duty free. But WTO has taken a required step for the Removal of quantitative Restriction

GATT- General Agreement on Tariffs and Trade

• Launched in 1948 by 23 countries including India.

OBJECTIVES• To reduce trade Barriers• To eliminate international discriminations • To have mutual co-operation• To develop full utilization of resources• To increase world production by ensuring full

employment

GATS- General Agreement on Trade in service

• Is one of the multilateral agreements of WTO.

• Services like banking, insurance, transportation, television, radio ,film etc are heavily protected through restrictions.

• The main obligation is that the member countries are prevented from discrimination among foreign suppliers

TRIPS- Trade Related aspects of Intellectual property Rights

TRIMS- Trade Related Investment Measures

TRIPS To promote innovation and transfer of technology.

1. Property rights2. Trade marks3. Industrial designTRIMS• To meet trade balancing requirements• Local contents• Domestic sale requirements

WTO – world Trade Organization

• 1 ST JAN 1995. LOCATED IN Geneva in Switzerland.

• An international organization that administers multi lateral agreements in relation to trade of G/S TRIPS .

• 132 members countries including develop and developing countries

• Its nature is to deal with rules of trade and it provides platform for better trade relations

Objectives• To administer multi lateral trade system• Platform for multilateral trade negotiations• To keep a track of national trade policy of

member countries• To resolve disputes among member countries.

Principles • Most favored nations• Reduction in trade barriers• Unfair practices such as Dumping• More benefits to be give to less developed

countries

WTO & India

• Lowering of import duties – close of industries

• Quantitative restriction – member complains has forced to remove the Quantitative restriction has led to damage to industry

• 2nd hand cars are allowed to be imported.. Effected the automobile industry

• Small scale industries• MNC’s